Dual Agency

The ultimate guide to dual agency in Minnesota.

This is what a dual agent looks like. Clients are the lambs he’s looking at.

What is a Fiduciary?

A fiduciary is someone who pledges to you their undivided loyalty and who places your interests above all others especially their own. Fiduciaries are supposed to avoid conflicts of interests and even the appearance of impropriety. Fiduciaries are held to the highest standard under the law. Justifiably, the old adages, “You can’t serve two masters,” and, “the law abhors a dual agent” apply to all fiduciaries…except real estate brokers.

Note: A fiduciary is also known as an “agent.” This can become very confusing because individual Realtors are also called “agents.” Minnesota licensing law identifies individual licensees as “salespeople” and I use that nomenclature throughout this article.

Rule: The salesperson represents whomever the broker represents.

Before you can understand agency in real estate, you must first understand the difference between a broker and a salesperson (aka “agent”). The broker is the real estate firm or responsible licensee at the firm and salespeople are the individuals with whom consumers typically engage. Most consumers believe that when they select a real estate salesperson, that they are hiring that salesperson to work for them. That is not true. You are ONLY hiring the brokerage firm. All contracts are ONLY with the broker. You DO NOT have a contract with your salesperson. The broker handles all contracts, money, and responsibilities to the consumer. The broker delivers services to you through their salespeople. Brokers are required to supervise all salespeople and they are responsible for their salespeople’s conduct. They are also privy to all of your confidential negotiating information. If “your” salesperson leaves the firm, the broker will assign you another one. Follow the rule that your salesperson represents whomever the broker represents.

What is dual agency?

Dual agency occurs when one brokerage firm represents a buyer and seller in the same transaction. You lose all representation.

In real estate, dual agency occurs when one brokerage firm represents a buyer and seller in the same transaction (or two buyers bidding on the same property). It doesn’t matter if there are two salespeople or just one. When dual agency occurs the exact same betrayal occurs. The broker owes the buyer and seller the impossibly conflicting duties of purchasing and selling the same property at the best price and terms. Dual agency occurs at the broker level and then flows to all the salespeople. Whomever the broker represents is who all the salespeople represent. The myth that there are multiple forms and levels of dual agency is just not true. Minnesota licensing law has rewritten agency law so that when dual agency occurs that the broker and all the salespeople are prohibited from advocating for their clients. No matter how many salespeople are involved, when dual agency occurs the salesperson (or salespersons) and the brokerage firm are legally prohibited from, “advocating for one party to the detriment of the other.”MINN. STAT. 82.67.

You (don’t) get what you pay for.

Dual agency used to be illegal in every fiduciary profession (legal, medical, accounting, etc…). It almost always facilitated fraud. And it used to be illegal for Realtors until they used their massive lobby to rewrite the law of dual agency just for them.

In Minnesota, consumers pay enormous amounts of money for brokers to help them buy and sell homes. Consumers need expert advice and service when buying and selling homes. While the low entry standards to the real estate profession are a huge impediment to Realtors providing expert advice, dual agency completely eliminates the possibility that consumers will receive any meaningful advice. And if an agent does provide advice to one client, that agent and broker are committing fraud against the other client. Dual agency results in the complete abandonment of the client at a time when the consumer needs their agent the most. Despite that monumental degradation in the level of service being delivered there is no commensurate reduction in their fee.

Why is dual agency so bad? It’s called “bait and switch.”

Dual agency is bad because it springs a catastrophic degradation in services on consumers when they are least prepared for it. It is bad when that happens in a typical consumer setting. It is an abomination when it happens in a fiduciary setting. In real estate, that catastrophe occurs after the broker has already pledged their undivided loyalty and gotten their client to divulge all kinds of important negotiating information. To make matters even worse, brokers have a huge financial incentive to encourage dual agency and manipulate things behind the scenes. Because there are no paper trails, few consumers will ever understand how their dual agency transaction was manipulated.

Agents and brokers routinely advertise and market that their value proposition is that they provide advice and counsel to their clients that is superior. Some agents at large firms even go as far as to claim that they are fabulous negotiators. At a minimum that is misleading. Typically you get little legal value from your dual agent salesperson other than they are pledged to treat you “fairly.” Many dual agents willfully commit fraud and find ways to illegally advocate for their clients.

Example: You are a buyer and select a salesperson from a mega-brokerage firm who claims to be a great negotiator (the “bait”). He gets you to sign an agency disclosure form and has you agree to dual agency in his broker’s Buyer Representation Contract. The contract states that the broker is your buyer representative. However, it also has a completely inadequate disclosure about dual agency and how it might arise. The contract also fails to warn you that dual agents can’t negotiate on your behalf (the licensing statute doesn’t require it) and that his broker gets a double fee if you end up buying one of their houses. It even misleading warns you that they won’t be able to show you as many homes unless you agree to dual agency. You rightfully believe that the salesperson and the broker represent you. The salesperson manipulates you into writing an offer on a house listed by his brokerage firm. At that moment, the listing broker, your salesperson, and the listing salesperson become dual agents. The listing broker will get a double fee if you buy this house. The listing broker is also privy to all your private negotiating information and is responsible for “supervising” your salesperson and the listing salesperson. You have no way of knowing if the broker is using your confidential negotiating information to somehow collect their double fee. Your salesperson is now legally prohibited from advising you to the detriment of the seller or helping you negotiate. Your salesperson should tell you that it would be against the law to advise you in any way. You have been abandoned right when you need his services the most. You are on your own to determine the best price and terms and negotiate the complex inspection period that occurs after the purchase agreement is signed. Meanwhile, you have no way of knowing if the other salesperson is secretly advising her clients…

Dual agency occurs the most and is worst at mid-size and large brokerage firms

Dual agency routinely occurs in mid-size and large brokerage firms and rarely occurs in small firms.

The statutory disclosures and consent forms are a fraud.

The Minnesota licensing statute provides dual agency “disclosures” that once given to the consumer, completely strips the consumer of their rights and empowers brokers to unfairly exploit them in ways that are unheard of in any other profession. Consumers would be far better off if there were NO licensing laws. Minnesota licensing laws protect licensees from consumers instead of the other way around.

First, the so-called “disclosure” forms do not come close to warning consumers about the most serious problems of dual agency. If they did, no one would agree to dual agency. The common law of agency makes the disclosure requirements so ominous that few professionals would ever intentionally entertain such a relationship. And if properly disclosed, few consumers would ever agree to dual agency. That was a good thing. However, after losing a massive class action lawsuit in the 90’s, the Realtors rewrote Minnesota agency law just for them. Here is a snippet from the 1994 legislative history. The language they replaced (see striked out text) held brokers to be liable for common law agency violations just like other professions. Italics is the new language.

Subd. 3. [SCOPE AND EFFECT.] The requirements for disclosure of agency relationships set forth in this chapter are intended only to establish a minimum standard for regulatory purposes, and are not intended to abrogate common law.Disclosures made in accordance with the requirements for disclosure of agency relationships set forth in this chapter are sufficient to satisfy common law disclosure requirements.

Second, the agency disclosures required to be given to consumers clearly protect the financial interests of the large brokers to unfairly profit from dual agency. The “disclosures” are inadequate and very misleading. Coincidentally, the disclosures in the “Agency Disclosure” document (rarely read by consumers) are materially different from those given to consumers in their broker contracts. Instead of warning consumers about the problems with dual agency, the contract actually warns people of the imaginary dangers of not agreeing to dual agency. Worse, it fails to provide the warning found in the Agency Disclosure that dual agents can’t advocate to the detriment of the other party.

The Regulators are Regulated by the Regulators

The Minnesota Department of Commerce is considered to be a joke among real estate attorneys. While they are perfectly willing to enforce laws against other industries, the real estate division performs like an arm of the Realtor Association when it comes to enforcement of real estate licensing laws. Search their enforcement actions against real estate firms and you will find nothing against any of the large brokerage firms. Yet nearly all of the malfeasance that has come my way over the years seems to involve those big companies. I’ve seen them look the other way if fraudulent conduct involves their favorite big firms. At the same time, I’ve filed complaints with their insurance division and was actually told not to tip off the real estate division because they would shut down their investigation (some real estate firms were involved).

Caveat Emptor – be aware

Dual agency should be avoided at all costs. That means you need to avoid mid-size and large brokerage firms. If you get defrauded, your remedies are likely to be severely limited. The arbitration agreements Realtors have you sign are atrocious and deprive you of your remedies. Their so-called “representation” fee agreements are drafted in a backroom of the Realtor Association and are designed to deprive you of your rights. Even the licensing laws which are supposed to protect consumers work to protect the industry instead. And the licensing law enforcement agency refuses to go after the biggest violators of the dual agency frauds – the big real estate brokers.

Real estate brokers and their salespeople are the least qualified fiduciaries who should be entrusted with the enormous conflicts of interest that come with dual agency. Attorneys are trained in conflict of interest avoidance and it is illegal for us to represent a buyer and seller in the exact same scenario that brokers do it. Say no to large firms and call me and let me guide you through the process.

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My congressional testimony about the corruption in the title insurance industry.

Congressional Testimony about the corruption in the title insurance industry